Annual Report Commentary on the Value Creation Process

65 Pages Posted: 14 Aug 2018 Last revised: 9 Jul 2019

See all articles by Vasiliki E. Athanasakou

Vasiliki E. Athanasakou

Saint Mary's University, Canada - Sobey School of Business

Mahmoud El-Haj

Lancaster University - School of Computing and Communications; Lancaster University

Paul Rayson

Lancaster University

Martin Walker

University of Manchester - Manchester Business School

Steven Young

Lancaster University - Department of Accounting and Finance

Date Written: May 12, 2019

Abstract

We measure annual report commentary articulating entities’ business model and strategy, and then examine the capital market effects of enhancing such disclosure. Our empirical disclosure proxy is based on n-grams drawn from popular strategy textbooks and the academic strategy literature. Validation tests confirm that our score: (a) correlates with manual classifications of the quality of strategy-focused disclosures produced by domain experts; (b) covaries predictably with firm-level drivers of strategy-focused disclosures identified by prior research; and (c) captures the structural break in reporting associated with the regulatory mandate for a subset of London Stock Exchange firms to explain their strategy and business model. Tests using this exogenous and measurable increase in strategy-focused disclosure show that enhanced commentary on strategy and business model is associated with lower investor uncertainty. We also find support for an increase in the speed at which information is incorporated into stock price following the annual report release.

Keywords: Strategy, Annual Report Narratives, Textual Analysis, Information Asymmetry

JEL Classification: M41, M21, D89

Suggested Citation

Athanasakou, Vasiliki E. and El-Haj, Mahmoud and Rayson, Paul and Walker, Martin and Young, Steven, Annual Report Commentary on the Value Creation Process (May 12, 2019). Available at SSRN: https://ssrn.com/abstract=3212854 or http://dx.doi.org/10.2139/ssrn.3212854

Vasiliki E. Athanasakou

Saint Mary's University, Canada - Sobey School of Business ( email )

Sobey Building 311
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada

Mahmoud El-Haj

Lancaster University - School of Computing and Communications ( email )

InfoLab21
Bailrigg
Lancaster, LA1 4WA
United Kingdom
+44 1524-510348 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/staff/elhaj/

Lancaster University ( email )

InfoLab21, South Drive
Lancaster University
Lancaster, LA1 4WA
United Kingdom
1524510348 (Phone)

HOME PAGE: http://www.lancaster.ac.uk/staff/elhaj

Paul Rayson

Lancaster University ( email )

School of Computing and Communications
Lancaster LA1 4YX
United Kingdom

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Steven Young (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

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